Bad Debt Management
We are living in difficult economic times and entrepreneurs are experiencing shortages on their profit and loss accounts. On top of achieving reduced levels of profitability, businesses face greater difficulties in converting their sales into cash, due to bad debts.
This occurs as the result of the credit restrictions experienced in lending markets, which has lead to an increase in the number of company bankruptcies in Spain. Rises in levels of debtors for banking institutions and the amount of unpaid obligations has generally rocketed.
We would like to consider some of the vehicles available to enable the business to either ensure the collection of debtor balances by financial product means, or to mitigate their existence.
It is the accountant’s job to minimise the impact of bad debts on the business accounts utilising any reliefs available to ensure that the client is not taxed on those transactions which are more likely to remain unrecoverable.
The qualifying criterion relevant to each method of taxation does vary, and consequently care needs to be taken when applying any reliefs.
The criteria for the reliefs available in relation to the different taxes suffered by businesses are summarised below:
We have explored the potential tax barriers to bad debt relief, and the costs associated with implementing financial products to recover the business’ doubtful debts. Effective collection of debtors should be one of the prime objectives of any business.
There is no point in increasing sales if the business is failing to collect payments in the appropriate manner.
Furthermore, if the business has high levels of debtors it may well find difficulties when the time comes to settle its obligations. The credit terms offered to clients will depend on both the industry and business’ style. However, to speed up debt collection any business should:
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